From The Realtor: The Modern House Design Premium

From The Realtor:The Modern House Design Premium

Brick & Wonder member and The Modern House Founding Director, Albert Hill, discusses new research commissioned by The Modern House which proves that homebuyers are prepared to pay more for beautifully designed homes.

For years, we’ve known instinctively that buyers are prepared to pay a good amount over the going rate for the design-led homes that The Modern House represents. But how would we prove it, and how could we measure exactly how much the premium is, over the selling prices of less inspiring neighbouring properties? And, crucially, why are people prepared to dig deep for these design-led spaces?

We tasked the diligent analysts at Dataloft, an established market intelligence company with a long track record of reporting on the housing market, with doing some digging to help us find out.

Will you achieve 12% more than local market rates? Given the average London property price of around £625,000, that’s not an amount to be sniffed at: £75,000

After a few weeks of toiling away, looking at over 14,000 transactions in over 100 London postcodes and comparing them, on a price per square foot basis, to a sample of London sales that The Modern House has overseen over the past three years, Dataloft arrived at a conclusion: ‘There is a weighted average price premium of +12% for design-led homes sold through The Modern House.’

“So is that it? If you have a design-led home and sell it through The Modern House, will you achieve 12% more than local market rates? Given the average London property price of around £625,000, that’s not an amount to be sniffed at: £75,000.

Before we start offering solid guarantees for this fantastic 12% uplift, however, we have to admit that it’s not quite that simple. For instance, at the upper end of the market (properties valued at £1m+), we found that the premium was even higher, around 19%, but it was nearer 10% at the lower end of the market.

We also have to acknowledge that every property that comes to the market is so nuanced, despite the common factors that Dataloft compared, that it’s always hard with property market analysis to be cast-iron accurate.

There is also a question around whether the uplift is down to the design (which, of course, raises the big question of how design should be defined) or the positioning and presentation of the property by The Modern House. Is it, in other words, a design premium or a curation premium? Needless to say, we think it’s a mixture of the two.

It’s worth mentioning here a study done by the Spatial Economics Research Centre & London School of Economics back in 2015 where they also tried to work out if there was a design premium in the UK housing market or, in their rather more academic terms, “to estimate the capitalized value of the design quality of a neighbourhood”.

Whereas we studied our own sales, all of which were of design-led homes, they looked at sales in conservation areas and came to an even more bullish conclusion than us. Where our research points to a 12% uplift, their report puts the design premium figure at 25%. That’s a very significant £160,000 in the context of the average London house price mentioned above.

The research, then, clearly points at the fact that people will pay more for what they perceive to be good design if it’s properly presented to them. Many of our clients have known this all along, even if only on an intuitive level, and have managed to outperform the housing market accordingly. Given the recent turbulence of the London market, especially, good design has acted as an effective buoyancy aid for savvy sellers.

This brings us to two burning questions: why will people pay more for well-designed homes and what, indeed, is good design? These are both far bigger questions than can be neatly answered here, but it’s at least worth briefly exploring both.

Such is the national obsession with house prices in the UK that many commentators and, indeed, property professionals, forget that an owned house or apartment is not only an investment vehicle but also a home. It’s a vital space where life is lived, a place where we work, we play, we rest, we eat, we talk and much more besides.

Today’s consumer increasingly values experiences over products, and well-designed spaces that you occupy every day offer just the sort of transformative experiences that buyers aspire to. In the past, the Joneses may have been impressed by how many bedrooms you had, or how far your garden extended, but today it’s more about how you’ve used the space that you have. How, in short, it has been designed.

This brings us to design itself, and how to define it – something that has been wrestled with since antiquity. One of the earliest attempts at a definition was by Vitruvius (an architect during the 1st century BC). He famously described the three design ‘virtues’ asfirmitas, utilitas, venustas – durability, practicality and beauty. Thousands of years later this definition remains hard to contest, but on a more micro level there are a number of things that we notice buyers respond particularly well to. Chief among these is levels of natural light – good design draws light into interior spaces.

Materials are also crucial to creating value – and it’s not just as simple as saying gold taps and wall-to-wall marble – but rather an appropriate, inventive and tactile approach to material choices. I like Lily Bernheimer’s definition of well-designed spaces (in her recent book ‘The Shaping of Us’) as having a combination of ‘comfort and awe’ as well as both ‘prospect and refuge’. In other words, we love open-plan, as long as it is counterbalanced with some areas of intimacy, and we want to be inspired by spaces, but also for them to offer some reassurance.

Ultimately, however, good design is a concept that alludes clear definition. And so too is a precise answer to what premium it creates for property prices. In the absence of black-and-white answers, however, we can at least say that the 12% figure reached by our research gives a good indication of buyers’ appetites for more nuanced properties. And, of course, the companies that sell them!